KKR, a prominent global investment firm, has released its 2024 mid-year global macro outlook, authored by Henry McVey, CIO of KKR’s Balance Sheet and Head of Global Macro and Asset Allocation (GMAA).
In the report titled “Opportunity Knocks,” McVey and his team argue that the current economic cycle still has room to grow, despite anticipating heightened volatility and political complexity in the latter half of 2024. They emphasize that diversification and the ability to adapt to market dislocations will be key to seizing the significant investment opportunities available. The team’s positive outlook is supported by several factors, including a strong technical backdrop, a structurally higher level of U.S. productivity, a robust global employment market, central bank balance sheets that remain substantial, and a surprisingly strong global capital expenditure cycle.
McVey and his team maintain that we are in a new investment regime marked by excess stimulus, increased geopolitical risks, an uneven energy transition, and a persistent skills mismatch. Consequently, they believe the traditional relationship between stocks and bonds has fundamentally shifted, necessitating a new portfolio strategy that includes more non-correlated assets. They highlight that stock-bond correlation has now become the primary source of portfolio volatility, a situation unfamiliar to most Chief Investment Officers.
The report outlines high-conviction asset allocation recommendations and key investment themes relevant in today’s uncertain landscape, such as increasing AI-driven electricity demand, the reorientation of global supply chains, improved labor productivity, and retirement security. Key updates since their 2024 Outlook include:
- Stronger emphasis on owning non-correlated assets due to a flatter frontier for expected returns amidst heightened portfolio volatility.
- Greater mismatch between energy supply and demand driven by electrification needs and the growth of energy-intensive users like data centers and EV battery plants.
- Broader earnings growth across sectors and geographies, which could bring more balance to equity markets.
- Sustained deficits due to election volatility, reinforcing the Regime Change thesis and belief in persistent wide deficits.
- Positive outlook on productivity, especially in the U.S.
- Unprecedented demand for worker retraining to fill high-skilled jobs left open by COVID-era retirements and technological advancements.
McVey and his team also present several out-of-consensus forecasts:
- Higher-than-consensus GDP growth estimates for 2024 across all regions, including 2.5% for the U.S., 0.8% for Europe, 5.0% for China, and 0.6% for Japan.
- Less concern about a lower U.S. savings rate due to aging demographics.
- Higher long-term interest rates in the U.S. and Europe, in line with their inflation outlook.
- Better earnings per share than consensus, driven by margin expansion, leading to a higher S&P price target.
- Oil prices expected to settle in the mid $70-80 range in 2024, with longer-term forecasts above futures.
- Asymmetric risk for the economy and markets if rates rise rather than fall, with currency and labor markets as potential volatility sources.
The report also updates the GMAA team’s views on global growth, inflation, interest rates, commodities, currencies, and capital markets. It addresses key investor queries on topics like relative value, inflation, the U.S. election, consumer spending, expected returns, portfolio construction, and emerging markets.
To access the full report and an archive of Henry McVey’s previous publications, please visit:
